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By Dixie Watts Reaves
of the Department of Agricultural and Applied Economics, Virginia Tech

Over the past few years, tobacco producers have faced uncertainty on many fronts: proposed increases in tobacco taxes to fund health-care costs; rulings on whether nicotine can be regulated as a drug; individual, class-action, and lawsuits by various states against the industry; proposed national tobacco settlements; and a host of others. In December, flue-cured producers learned that their quotas would be cut by 18 percent, meaning that 1999 production will be at the lowest level since the government began keeping records in 1938.

Tobacco Settlement Impacts

In addition to legislation, lawsuits, and taxes, pressures exist at many levels to reduce government support for tobacco. Federal legislation initiated 'The Tobacco Program' more than 60 years ago. The program ensures farm-level price and supply stability through a combination of acreage allotments and marketing quotas. With back-to-back quota cuts, concern over the future of the program is being expressed. The 1999 quota cut will lead to substantial declines in tobacco revenues, and the cut would have been larger if not for last-minute buy-outs of stocks at discounted prices. Some have praised the national tobacco settlement as bringing some stability to what has been a very unstable industry. However, legal battles, other than lawsuits by various states, are ongoing: President Clinton revealed during his State of the Union Address that the federal government would pursue a lawsuit against tobacco manufacturers, Congress may try to pass some form of tobacco legislation this year, and many states will likely spend the majority of their settlement dollars on anti-smoking campaigns that could further reduce cigarette consumption and demand for tobacco at the grower level. Therefore, the uncertainty producers have faced over the last few years will likely continue. "Managing for Success," a pilot program intended to help producers with strategic planning and decision-making in this environment of uncertainty, will begin in February.

The National Tobacco Settlement requires tobacco manufacturers to pay $206 billion to states in compensation for health care costs allegedly arising from the use of tobacco products. In exchange for the payments, tobacco companies will receive protection against future damage claims from states. Immediately following the settlement announcement, manufacturers raised cigarette prices an average of $0.45 per pack. Although the amount is uncertain, cigarette consumption is expected to decline as a result of the price increases, as well as the anti-smoking efforts that are also a part of the settlement. Therefore, the settlement will ultimately impact tobacco-producing farm families and the communities in which they live. Following the settlement, representatives from tobacco-producing states met with manufacturers to establish a trust fund to help producers adapt to the changes that are expected to result from the settlement. Furthermore, lawmakers in some states have proposed legislation that would earmark a portion of that state's settlement dollars to support producers and their communities. The potential for obtaining a portion of the settlement dollars adds to the strategic decision-making that producers will face (in terms of deciding how those funds would best be used).

The Importance of Tobacco in Virginia's Economy

Tobacco plays an important role in Virginia's economy. Tobacco is the number one crop in cash receipts in the Commonwealth, having a 20 percent of crop sales and 8 percent of all agricultural sales in 1997. Cash receipts in 1997 exceeded $188 million. While tobacco is important to the state's economy as a whole, its impacts are regional with the top 6 flue-cured tobacco-producing counties accounting for $130 million of these receipts. Individual counties are heavily dependent on tobacco income: for example, tobacco sales in Halifax County were 79 percent of total county agricultural sales in 1996 and represented 10 percent of total household income for the county.

Total regional economic output for Southside Virginia created by production plus stemming and redrying (not including manufacturing) was estimated in 1995 at $756 million. The value-added share of this output was nearly $251 million, associated with over 6,800 jobs, some of which are seasonal in nature (Wise and Reaves).

Over the past three years, a coalition from Virginia Tech and the University of Virginia, working with a grant from the Robert Wood Johnson Foundation, conducted a "Tobacco Communities Project." A series of roundtable discussions focused on how tobacco industry income-dependent families could begin to plan for upcoming changes. These families fall into several socioeconomic groups:

tobacco producers, mostly rural-dwelling households located throughout the region;

a less well-defined group that includes retired producers and owners of tobacco quotas who reside in the region, no longer produce tobacco, and rent their quota to other producers.

A Program to Assist Tobacco Farm Families

To address the needs of Virginia's tobacco farm families, a program development committee was established to facilitate design and delivery of a well-defined educational program. Originally, committee members were extension specialists in Agricultural and Applied Economics. However, as the nature of the problem became apparent, the committee was expanded to include specialists from the College of Human Resources and Education, specialists at the Southern Piedmont AREC, extension agents from tobacco producing counties, and farm management agents. This committee will provide direction, support, teaching materials, and training for extension personnel interested in teaching "Managing for Success" workshops.
Specific objectives of the "Managing for Success" program established by the program development committee are to teach farm families to learn and apply

Paramount to achieving these four goals is developing an educational curriculum and teaching materials to help tobacco farm families address the pending adjustments in their business and family life. These adjustments will affect the long-run profitability of the family business and, equally important, the relationships between family and business partners as they struggle to meet the challenges of change and uncertainty.

The overall objective of this program is to help people help themselves to be better business managers. The concept builds on the comment of Peter Drucker that "long range planning does not deal with future decisions, but the future of present decisions." This program will help tobacco producers understand their motivating values, examine what drives their desire to work the land and crops, and establish a framework of management concepts and skills to strengthen their future chance of success.

This project will support existing extension activities that target tobacco producers' shorter-run planning issues of production and financial management. The Virginia "Managing for Success" program will be based on similar successful educational programs conducted in a number of states (New York, Michigan, North Carolina, South Carolina, and Ohio) in response to the restructuring needs of their dairy industries.

A one-day pilot workshop to introduce the curriculum to 12 tobacco producers and extension personnel was held December 4, 1998 at the Southern Piedmont AREC in Blackstone, Virginia. Participants were led through an exercise to identify critical issues for tobacco farm businesses and families. The following critical issues were identified:

reduced income

potential options and the associated emotional issues of change

opposition to options

non-agricultural options and the adjustments required

retirement planning

impacts on rural communities and loss of political influence

health care

loss of control over the future

risk and uncertainty

lost opportunities for those wanting to produce

farm labor supply and wages

Participants were confident that the planned educational program would help tobacco farm families address these critical issues in a positive manner. Their response also included a recommendation that the educational program be offered to all interested tobacco families in Southside and Southwest Virginia. In addition, participants recommended that follow-up one-day workshops on specific topics be held monthly during the off-peak season (November to February). Finally, they strongly recommended that the first workshop be offered in the Richmond area no later than February 1999.

Addressing the Problem

"Managing for Success" programs and follow-up workshops will be planned and conducted in major tobacco growing regions of the state (Southside and Southwest).

A workshop will be conducted in the Richmond area, held on Friday night and all day Saturday on two consecutive weekends (February 19-20 and 26-27). The workshop will involve ten farm families (possible 30 individuals including both spouses and other family members) selected from 5 Southside Virginia counties. Extension agents from nine counties will participate to gain knowledge of the materials and teaching methods to be used in future workshops.

In the winter of 1999 and beyond, workshops will be planned in the major tobacco producing counties in Southside and Southwest Virginia. Extension agents will be asked to assist in planning and conducting a "Managing for Success" program and follow-up workshops in their area. In addition the development team will continue to develop teaching materials for new topics identified as critical needs by participants.

The uncertainty facing tobacco producers is expected to continue as adjustments to the tobacco settlement are made and additional pressures are placed on the industry. The "Managing for Success" program is one attempt to assist producers in adapting to anticipated changes.